Delhi High Court
In The Matter Of Iyogi Technical ... vs .......... on 20 March, 2019
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment Reserved on: 01.11.2018
% Judgment Pronounced on: 20.03.2019
+ CO.APPL.(M) 135/2016
IN THE MATTER OF IYOGI TECHNICAL
SERVICES PRIVATE LIMITED ..... Petitioner
Through Mr.Sandeep Aggarwal, Sr.Adv. with
Ms.Aakanksha Kaul, Advs. for petitioner.
Mr.Jayant Mehta, Ms.Anjali Dwivedi, Ms.Simran
Brar, Mr.Srisatya Mohanty and Ms.Anjali
Dwivedi, Advs. for DLF Assets Pvt.
CORAM:
HON'BLE MR. JUSTICE JAYANT NATH
JAYANT NATH, J.
CO.APPL.(M) 135/2016 & CA 1107/2018 & 1109/2018
1. This application has been filed under section 391 of the Companies
Act, 1959 for dispensing with the meeting of shareholder and convening a
meeting of secured and unsecured creditors of the applicant company and to
pass an order approving and implementing the proposed scheme of
arrangement to pay to the creditors. The case of the petitioners is that the
applicant company was incorporated on 28.2.2007 as a private limited
company which was engaged in the business of providing technical support
and computer maintenance services to in-home users, small offices and
business enterprises having customers in various countries like United
States, United Kingdom, Australia etc. The petitioner company was granted
status of an approved "Special Economic Zone" unit. It is pleaded that the
revenues demonstrated a phenomenal growth in 2013-14 and 2014-15 with
revenues being Rs.520 crores and Rs.500 crores respectively. However, a
financial crunch was posed in the year 2014-15 when IBM, the company‟s
largest partner transferred the Master Services Agreement (MSA) to some
other company. It is pleaded that in order to improve its net worth the
company made a partnership agreement with a large telecom company in
UAE which is projected to generate revenues of Rs.163.10 crores in the next
12 months. It is pleaded that the scheme proposed would enable the
petitioner company to generate business of Rs.150 crores in 2017-18.
Alongwith the application the audited balance sheet for the year 2014-15
was filed and unaudited financial sheet statement for the year 2015-16 was
filed. The Scheme creates four Classes of creditors namely Class A for
Creditors of statutory dues, Class B secured creditors, unsecured creditors
are part of Class C and Class D creditors are the dues of the employees. The
scheme proposes to pay 100% of the amount due and payable for statutory
dues within a period of 24 months. Similar is the position regarding Class B
secured creditors. Regarding unsecured creditors, the Scheme proposes
payment of 50% of the total outstanding amount within a period of 24
months. Regarding Class D employees dues, the Scheme proposes payment
of 100% of monthly salary of all employees, 100% payment of annual bonus
of all employees below the grade of assistant manager and 50% of the
outstanding bonus of above the grade of assistant manager again within a
period of 24 months.
2. On 25.10.2016 this court had directed convening of a meeting of the
secured creditors, statutory creditors, unsecured creditors and employees
respectively. The Quorum of the meeting was fixed as 50% in number and
more than 50% in value of the total unsecured debt.
3. The meeting as directed on 25.10.2016 was held after several
extensions having been sought from this court. The concerned Chairmen
have filed their report.
4. I may note that under Rule 79 of the Company (Court) Rules 1959
where a proposed compromise or arrangement is agreed to with or without
modification in the meeting, the company has to present a fresh petition to
the Court for confirmation of the compromise/arrangement. In the present
case, the petitioner has not filed a fresh petition for confirmation as provided
in the above Rule. It was argued that the petitioner has filed a composite
petition for appropriate orders under section 391 to 394 of the Companies
Act in terms of Rule 67 of the Rules and Rule 79 of the Rules taking into
account both the stages. Reliance was placed on judgment of the Punjab and
Haryana High Court in Alpha Corp. Development Private Limited vs.
Euthoria Developers Private Limited, MANU/PH/0165/2007 to contend
that this course is permissible.
5. A perusal of the report of the Chairperson of the respective meeting
would show as follows:-
(i) In the meeting that took place of the employees of the respondent
company a resolution was passed in favour of the scheme of the total value
of the amount above Rs.8,16,83,085/- being the value of votes. The votes
against were for Rs.15,79,110. Hence, 3/4th of the value of the creditors have
approved the scheme.
(ii) In the meeting for secured creditors no voting took place. The report
points out that no authorisation letters were received from the secured
creditors though two of the creditors were present but they did not carry any
authorisation letter.
(iii) In the meeting of statutory creditors the resolution was passed by the
majority.
(iv) In the meeting of unsecured creditors there was a lot of confusion. A
number of unsecured creditors who were present have questioned the scheme
which provided that unsecured creditors will be paid only 50% of their debts
whereas all other creditors were being paid 100% of the dues. Representative
of the company intervened and stated that they will try to pay 100% of the
dues even to the unsecured creditors. 24 unsecured creditors voted at the
meeting. As per the report, 11 creditors voted for the resolution being a
value of Rs.1,35,03,221.36/-. 12 creditors voted against being a value of
Rs.5,42,08,965/-. The Chairman hence submitted that the resolution had
failed. I may only note that some of the unsecured creditors being four had
voted stating that they accept the scheme if 100% of the outstanding dues of
the unsecured creditors are being paid by the petitioner company. The
Chairman of the meeting had, however, taken these votes as against the
resolution. This was so because as per the scheme only 50% was payable and
there was no formal amendment to the scheme.
6. I may also note that two objections have been filed against the
scheme. One objection is filed by DLF Assets Private Limited being CA
1109/2018. The second objection being CA 979/2018 has been filed by „My
Kind of Vacations Private Limited‟. As far as „My Kind of Vacations Private
Limited‟ is concerned on 20.9.2018 learned counsel for the objector had
stated that the outstanding dues were Rs.22,47,468/-. However, learned
counsel further submitted that if the petitioner is ready to pay 100% of
principal amount payable the applicant would have no objections to the
scheme. The objections were disposed of with the above observations.
7. As far as DLF Assets Private Limited is concerned they have
vehemently opposed the present scheme. They have pleaded that as per the
present petition the petitioners claim to owe the objectors Rs.8,31,78,982/-
but the actual outstanding payable by the petitioner company is
Rs.35,93,68,836/-.
8. I have heard learned counsel for the parties.
9. Learned counsel appearing for the objector (DLF Assets Pvt. Ltd.) has
vehemently argued that the proposals contained in the scheme have been
rejected by the secured and unsecured creditors as is manifest from a perusal
of the report of the Chairman. He submits that under section 391 and 392 of
the Companies Act the schemes have to be mandatorily passed in the manner
stated in the said statutory provisions in the absence of which the scheme is
liable to be rejected. To support his contention he has relied upon the
following judgments:-
1. Miheer H.Mafatlal vs. Mafatlal Industries Ltd., (1997) 1
SCC 579 ;
2. Ferro Alloys Corporation vs. National Steel & General
Mills (P) Ltd.2005 (120) DLT 58 and
3. Bharat Synthetics Ltd. vs. Bank of India and Another,
(1995) 82 Comp Cas 437
He has secondly submitted that it is a mandatory requirement of
Section 391 of the Companies Act that all material facts relating to the
company such as the latest financial position of the company and the latest
report on the accounts of the company have to be placed before the Court.
He submits that no such reports have been placed and hence the present
petition is liable to be dismissed.
He has also relied upon judgments of the Supreme Court in
Administrator of the Specified Undertaking of the Unit Trust of India and
Anr vs. Garware Polyster Ltd. (2005) 10 SCC 682; and Chembra Orchard
Produce Limited and Others vs. Regional Director of Company Affairs and
Another, 2009 (2) SCC 547 to contend that it is the duty of this court to
examine the genuineness and bona fide of the scheme for dues.
10. Learned senior counsel appearing for the petitioner has refuted the
contentions of the learned counsel for the objector. Regarding the passing of
the scheme in the meeting of secured and unsecured creditors he submits that
these resolutions were duly passed.
Regarding the secured creditors, he submits that there are only two
secured creditors of the respondent company and both were present in the
meeting. Representatives of the bidder were present in court. However, the
bidding could not take place for technical reasons as they were not carrying
the letters of authority. He submits that these secured creditors have not
chosen to file any objections in this court meaning thereby that they are
agreeing to the scheme.
He further submits that in the course of meeting the petitioner had
offered to pay 100% of the outstanding principal debt to the unsecured
creditors. In the course of voting some of the creditors present had voted in
favour of the scheme for the newly propounded arrangement, namely, 100%
of the principal amount to be repaid. However, as this was not part of the
original scheme the Chairman of the meeting has counted such votes as
against the scheme. He submits that if these votes are taken into account,
majority of the unsecured creditors have supported the scheme.
Regarding the statutory records he submits that the balance sheet for
the year 2014-15 has been filed and the unaudited balance sheets for 2015-16
have been filed. He submits that as the company had not been showing any
activities thereafter there is no subsequent balance sheet ready. He relies
upon Ferro Alloys Corporation v. National Steel & General Mills (p) Ltd.
Co. (supra) stating that where choice is between revival of the company and
its winding up, the Court must lean in favour of revival of the company.
11. I may first note that on 25.10.2016 noting this to be the first motion
application under section 391-394 of the Companies Act this Court had
directed meeting of the secured creditors, statutory creditors, unsecured
creditors and the ex. employees on various dates. The petitioners were not
able to conduct the meeting on the date stated by the order of this court dated
25.10.2016. A subsequent application was filed for change of the date for
conducting the meeting. Petitioners filed CA 29/2017 before this Court for
extension of time for conducting the meeting. However, in the meantime the
provisions of the Companies Act, 2013 came into force and the Central
Government issued a Notification dated 7.12.2016 transferring some of the
cases from this Court to NCLT under section 434 of the Companies Act,
2013. On account of the confusion arising out of the above Notification, the
petitioners on 6.1.2017 sought leave of this court to withdraw this
application with liberty to institute appropriate proceedings in accordance
with law. Thereafter the petitioners preferred an application before NCLT.
The NCLT did not entertain the said petition. In an appeal filed before
NCLAT the NCLAT on 22.5.2017 noted that the time to conduct the
meeting was granted by this Court by its order dated 25.10.2016. It is only
this court that can extend the time to conduct the meetings. Liberty was
granted to the petitioners to move this court with the request to entertain the
application preferred by the petitioner. On 11.7.2017 this Court recalled the
order dated 6.1.2017 by which order the petitioner had sought leave to
withdraw the said applications.
12. I may note that in the main petition the petitioner has made both the
prayers, namely, for permission to convene the meetings of the concerned
creditors and to also approve and implement the proposed scheme of
arrangement to pay the creditors. The Punjab and Haryana High Court in
Alpha Corp. Development Private Limited vs. Euthoria Developers Private
Limited (supra)had noted as follows:-
"10. The learned Judge held that upon pronouncement of the
order dated 25.10.2016, no order was reserved by this Court
and, as a result thereof, this matter cannot be retained by the
High court. The learned Judge observed that under the aforesaid
notification this Court has jurisdiction for passing an order only
in a case which has been reserved by it. There are certain
important aspects of this issue regarding the aforesaid
notification which were probably not brought to the notice of
the learned Judge. Firstly, it must be noted that this was a
composite petition for directions and for the sanction of the
Scheme of Arrangement. There has been no objection to the
maintainability of a composite petition. In other words, it was
not contended before either the learned Company Judge or
before us that it was necessary to first file a petition and to seek
orders for holding meetings or dispensing with the meetings of
shareholders, creditors and others and thereafter file a separate
petition seeking a sanction of the Scheme. We proceed on the
basis, therefore, that this is a composite petition and cannot be
considered as two separate petitions."
The facts in the present case are somewhat akin. There has been
no objection to the maintainability of a composite petition.
13. I may now deal with the merits of the case. Section 391 of the
Companies Act, 1956 reads as follows:-
391. Power to compromise or make arrangements with creditors and
members.
(1) Where a compromise or arrangement is proposed-
(a) between a company and its creditors or any class of them; or
(b) between a company and its members or any class of them; the
Court may, on the application of the company or of any creditor or
member of the company, or, in the case of a company, which is being
wound up, of the liquidator, order a meeting of the creditors or class
of creditors, or of the members or class of members, as the case may
be, to be called, held and conducted in such manner as the Court
directs.
(2) If a majority in number representing three- fourths in value of the
creditors, or class of creditors, or members, or class of members as
the case may be, present and voting either in person or, where
proxies are allowed 1 under the rules made under section 643], by
proxy, at the meeting, agree to any compromise or arrangement, the
compromise or arrangement shall, if sanctioned by the Court, be
bind- ing on all the creditors, all the creditors of the class, all the
members, or all the members of the class, as the case may be, and
also on the company, or, in the case of a company which is being
wound up, on the liquidator and contributories of the
company: 2 Provided that no order sanctioning any compromise or
arrange- ment shall be made by the Court unless the Court is satisfied
that the company or any other person by whom an application has
been made under sub- section (1) has disclosed to the Court, by
affidavit or otherwise, all material facts relating to the company, such
as the latest financial position of the company, the latest auditor' s
report on the accounts of the company, the pendency of any
investigation proceedings in relation to the company under sections
235 to 251, and the like.]
(3) An order made by the Court under sub- section (2) shall have no
effect until a certified copy of the order has been filed with the
Registrar.
(4) A copy of every such order shall be annexed to every copy of the
memorandum of the company issued after the certified copy of the
order has been filed as aforesaid, or in the case of a company not
having a memorandum, to every copy so issued of the instrument
constituting or defining the constitution of the company.
(5) If default is made in complying with sub- section (4), the
company, and every officer of the company who is in default, shall
be punishable with fine which may extend to ten rupees for each
copy in respect of which default is made.
(6) The Court may, at any time after an application has been made to
it under this section, stay the commencement or continuation of any
suit or proceeding against the company on such terms as the Court
thinks fit, until the application is finally disposed of.
(7) An appeal shall lie from any order made by a Court exercising
original jurisdiction under this section to the Court empowered to
hear appeals from the decisions of that Court, or if more than one
Court is so empowered, to the Court of inferior jurisdiction. The
provisions of sub- sections (3) to (6) shall apply in relation to the
appellate order and the appeal as they apply in relation to the original
order and the application."
14. A perusal of the above provision would make it quite clear that a
majority in number representing 3/4th in value of the creditors or the class of
creditors etc. must agree to the terms or arrangement. I may first deal with
the submissions raised by learned counsel appearing for DLF Assets Private
Limited. As far as the plea raised by the learned counsel that the provisions
of Section 391 and 392 of the Companies Act are mandatory, in my opinion,
there can be no dispute on the said issue. The petitioner company would
have to bring a requisite majority in the meeting as envisaged under section
391 of the Companies Act.
15. Regarding the second submission of the learned counsel for the
objector is concerned, namely, that all material facts relating to the company
and its latest financial position must be made known the learned senior
counsel for the petitioner has pointed out that all relevant and available
financial documents have been filed. He has pleaded that the audited balance
sheets for the year 2014-15 have been filed and the unaudited financial
statement for the year 2015-16 has been filed. There are no subsequent
balance sheets available. Hence, it would be incorrect to state that the
mandatory provisions regarding filing of latest financial position of the
company has not been complied with by the petitioner.
16. I may now deal with the reports of the Chairman of the meetings. I
have perused the reports of the Chairman appointed for the various meetings
held.
17. Reference in this context may be had to the judgment of the Supreme
Court in the case of Miheer H.Mafatlal vs. Mafatlal Industries Ltd. (supra)
where the Supreme Court held as follows:
"29. ..... In view of the aforesaid settled legal position,
therefore, the scope and ambit of the jurisdiction of the
Company Court has clearly got earmarked. The following broad
contours of such jurisdiction have emerged:
1. The sanctioning court has to see to it that all the requisite
statutory procedure for supporting such a scheme has been
complied with and that the requisite meetings as contemplated
by Section 391(1)(a) have been held.
2. That the scheme put up for sanction of the Court is backed up
by the requisite majority vote as required by Section 391 Sub-
Section (2).
3. That the concerned meetings of the creditors or members or
any class of them had the relevant material to enable the voters
to arrive at an informed decision for approving the scheme in
question. That the majority decision of the concerned class of
voters is just and fair to the class as a whole so as to
legitimately bind even the dissenting members of that class.
4. That all necessary material indicated by Section 393(1)(a) is
placed before the voters at the concerned meetings as
contemplated by Section 391 Sub-section (1).
5. That all the requisite material contemplated by the proviso of
Sub-section (2) of Section 391 of the Act is placed before the
Court by the concerned applicant seeking sanction for such a
scheme and the Court gets satisfied about the same.
6. That the proposed scheme of compromise and arrangement is
not found to be violative of any provision of law and is not
contrary to public policy. For ascertaining the real purpose
underlying the Scheme with a view to be satisfied on this
aspect, the Court, if necessary, can pierce the veil of apparent
corporate purpose underlying the scheme and can judiciously
X-ray the same.
7. That the Company Court has also to satisfy itself that
members or class of members or creditors or class of creditors,
as the case may be, were acting bona fide and in good faith and
were not coercing the minority in order to promote any interest
adverse to that of the latter comprising of the same class whom
they purported to represent.
8. That the scheme as a whole is also found to be just, fair and
reasonable from the point of view of prudent men of business
taking a commercial decision beneficial to the class represented
by them for whom the scheme is meant.
9. Once the aforesaid broad parameters about the requirements
of a scheme for getting sanction of the Court are found to have
been met, the Court will have no further jurisdiction to sit in
appeal over the commercial wisdom of the majority of the class
of persons who with their open eyes have given their approval
to the scheme even if in the view of the Court there would be a
better scheme for the company and its members or creditors for
whom the scheme is framed. The Court cannot refuse to
sanction such a scheme on that ground as it would otherwise
amount to the Court exercising appellate jurisdiction over the
scheme rather than its supervisory jurisdiction.
The aforesaid parameters of the scope and ambit of the
jurisdiction of the Company Court which is called upon to
sanction a Scheme of Compromise and Arrangement are not
exhaustive but only broadly illustrative of the contours of the
courts jurisdiction."
18. In Bharat Synthetics Ltd. vs Bank of India and Another (supra), the
Bombay High Court held as follows:-
"6. It is undisputed that no meeting of the creditors and
shareholders has been convened and held, or consent of the
requisite number of creditors obtained. While according
sanction, there are mandatory requirements, such as to see
whether the meeting of the concerned was duly held and
conducted, that it was accepted by a competent majority, that it
was for common advantage, reasonable, prudent and proper in
every aspect."
19. Reference may also be had to the judgment of the Supreme Court in
Administrator of the Specified Undertaking of the Unit Trust of India and
Another vs. Garware Polyster Ltd., (supra) wherein the Supreme Court held
as follows:-
"32. Section 391 read with Section 393 of the Act postulate that
where a compromise or arrangement is proposed between a
company and its creditors or any class of them; or between a
company and its members or any class of them, the court is
required to direct holding of meetings of creditors or class of
creditors or members or class of members who are concerned
with such a scheme. In the event majority of the creditors
representing three-fourths in value of the creditors or class of
creditors or members or class of members, as the case may be,
present or voting either in person or by proxy at such a meeting
accord their approval thereto thus put to vote, whereupon, the
court may consider the question of grant of sanction thereto.
Section 391(1)(a) enjoins that requisite information therefore
should be placed for consideration before the voters, in terms
whereof the creditors or class of creditors can take an informed
decision in relation thereto. The court, however, would not grant
sanction to such a scheme only because the same reflects the will
of the majority of the creditors or a class of them but it must
consider all aspects of the matter so as to arrive at a finding that
the scheme is fair, just and reasonable and does not contravene
public policy or any statutory provision. Such a care or caution is
required to be exercised by all courts including the Civil Court in
terms of Order XXIII, Rule 1 of the Code of Civil Procedure."
20. The above judgments would show that the requisite statutory
procedure for supporting the claim has to be complied with.
21. A noted above, there is a clear approval of the scheme in the meeting
of the statutory creditors and the employees. There is however some
confusion in the meeting regarding unsecured creditors and secured
creditors.
22. Coming to the meeting of the unsecured creditors, it is clear from the
report of the Chairman that what was put to vote in the meeting was a
scheme envisaging that 50% of the debt of the unsecured creditors would be
paid over a period of 24 months. Orally, in the middle of the voting
procedure, the scheme was modified based on an oral offer of the petitioner
Company that the petitioner Company would try and pay 100 % payment to
the unsecured creditors of their outstanding dues. This aspect was reiterated
in court when the hearing took place.
23. I may now see the report of the Chairman of the meeting of the
unsecured creditors. A perusal of the report shows that the value of those
who voted for comes to Rs.1,35,03,221/- and those who voted against comes
to Rs.5,42,08,965/-. I may note that the Chairman has ignored the votes
which were cast in favour of the modified scheme, namely, that 100%
payment would be made of the dues of the unsecured creditors. This was
presumably done as the scheme that was put to vote only envisaged payment
of 50% of the debt. Some of the voters had in their ballot papers indicate that
in case 100% payment of the debt was being made, they would be willing to
accept the scheme. Taking into account such consents, the value of the votes
for the modified scheme i.e. payment of 100% debt as recorded is
Rs.2,79,54,873/- and the value of the votes against is Rs.3,97,05,744/-.
24. I may also note that there is an error in the report of the Chairman. He
has noted only 11 votes „for‟ the original scheme whereas there are actually
12 votes for the original scheme. The unsecured creditor Mahadev Travels
has voted for the scheme and has a debt of Rs. 1,05,77,364/-. This is clear
from the ballot paper attached.
Some of the creditors who had not voted had filed objections in court
against the scheme. However three of the creditors have withdrawn their
objections on learning that the petitioner is ready and willing to pay 100% of
the debt. CA No. 979/2018 was filed by one objector-My Kind of Vacations
Pvt. Ltd. who has claimed a sum of Rs.23,16,838. The other creditor is
Global Logic Indi Pvt. Ltd. who has claimed Rs.2,22,69,366/-. The third
creditor is Inficare Software Technologies Pvt. Ltd. who had filed Co. Pet.
No. 889/2016 who has claimed an outstanding of Rs.70,97,044/-. All three
creditors on coming to know that the petitioner is ready to pay 100%
payment have withdrawn their objections in court and stated that they have
no objection in case the petitioner are ready and willing to pay 100% of the
principal amount.
However, would it be possible to this court to take into account all
these subsequent developments which have taken place after the meeting.
25. Reference in this context may be had to the judgment of this Court in
In Re: DCM Estates and Infrastructure Limited, MANU/DE/0846/2003
where this court held as follows:-
"16. The position of law in respect of the sanction of a scheme
in respect of arrangement or compromise has also been dealt
with in S.M. Holding Finance Pvt. Ltd. v. Mysore Machinery
Manufacturing Ltd. (In liquidation) [1993] 78 Comp Cas 432
wherein it has been held as under :
"Where sanction of the court for a scheme of arrangement
or compromise is sought under section 391 of the
Companies Act, 1956, the court must look at the scheme
and see whether the Act has been complied with, whether
the majority is bona fide and whether the scheme is a
reasonable one or whether there is any reasonable objection
to it or such an objection to it that any responsible person
might say that he could not approve it. A reasonable
compromise will be a compromise which can be regarded
by reasonable person conversant with the subject as
beneficial to those on both sides who are making it. On a
proper reading of section 391, it is clear that the object of
the section is not confiscation. Although in a meeting held
under this section it is perfectly fair for every one to do and
express what is best for himself, the court has to see what is
reasonable and just as regards the interest of the whole
class. What is to be considered by the court is not whether
there is a loss of mere nominal, legal rights but whether
what has been done is beneficial in a business sense."
A. In the context of the approval of shareholders/creditors
obtained subsequent to the meeting fixed by the Court, the
following position of law has been laid down in the above
judgment of the S.M. Holding Finance Pvt. Ltd. (supra) "In the
decision of Mazola Theatres (P) Ltd. v. New Bank of India Ltd.
" [1975] (2) 1975 1 (Delhi), the Court has observed as follows:
"The meeting contemplated in section 391 is analogous to
an extra ordinary general meeting of the company, in as
much as a three-fourth majority is required to pass the
required resolution. The normal rule is that the consent of
the shareholders whether it is unanimous or by a three-
fourths majority, must be obtained in a meeting summoned
on the orders of the court under section 391. This is in
accordance with the general principle, that members must
act in a general meeting. Inroads have, however, been made
on this formal doctrine. Firstly, the consent of all or
virtually all the shareholders given even outside a meeting is
sufficient to comply with the requirements of a meeting.
Secondly, written resolutions instead of those passed in
meetings are now capable of being registered, e.g., section
192 of the Companies Act. Thirdly, the doctrine of lifting
the veil of incorporation and looking at the reality of the
action of the members enables the court to hold that consent
of the overwhelming majority of the shareholders outside
the meeting is sufficient to show that the resolution was
supported by virtually all the members of the company. In
these three ways substantial compliance rather than formal
compliance meets the requirements of the statute."
In the said decision, it is further observed as follows:
"A third exception to the rule that all the shareholders of a
company must cast their votes in a formally called meeting
is made by the doctrine of acquiescence. If all the
shareholders acquiesce in a certain arrangement, the
question of a meeting having been called does not arise at
all."
In the backdrop of this decision as well as on proper
interpretation of section 391(2) which is not mandatory, but
directory and there has been substantial compliance that three-
fourths value of the unsecured creditors have agreed to and
approved the scheme, the contention of the objector that there
was no proper compliance with the Act and that the court has no
jurisdiction to sanction the scheme will have to be rejected. As
already noticed, once the scheme is held to be reasonable and
proper, merely because there is one objector to the approval of
the scheme, who is none other than the sole dissenter, the court
should not refuse to sanction the scheme. What the court could
do in such circumstances is to give protection to the dissenter,
by amending the scheme. The above views of mine receive
support from Palmer's Company Law, volume 1, twenty-third
edition, para 79-13, which reads :
"...... The court will not, however, upset a scheme for minor
irregularities, as where consent of a class has been
subsequently obtained, and where the necessary majority of
one class was absent when the petition was presented, the
court allowed a fresh petition to be presented subsequently
when the necessary majority was later obtained, without
requiring the other class meetings to be held again."
Thus not only the Karnataka High Court in the above judgment,
but also this Court in Mazola's Theatres (P) Ltd. 's case (supra)
have approved the consents given outside a meeting held under
Section 391 of the Act. The view of Palmer on Company Law
noticed above is also to the effect that such minor irregularities
of a subsequent consent will not persuade the court to upset a
scheme which has subsequently obtained the requisite majority's
approval."
26. Keeping in view the above judgment this Court can take into account
consents received for the scheme after the meeting. Hence, the consent given
in court by the three unsecured creditors, namely, My Kind of Vacations
Private Limited, Global Logic Ind. Pvt. Ltd. and Inficare Software
Technologies (P) Ltd. can be taken into account. After taking them into
account the result comes as follows:-
Value in favour of Scheme - Rs.7,02,15,486.36/-
Value against the Scheme - Rs.2,91,79,948/-
Total value - 70215486.36
+ 29179948.00
9,93,95,434.36
3/4th of the total due = ¾ (99395434.36)
= Rs.7,45,46,575.77/-
It follows that the above record shows that taking into account the
error in the report, the votes cast in the meeting for the modified scheme i.e.
payment of 100% debt and no objections given by some of the creditors in
court, the new scheme appears to have got the support of more than 70% of
the value of unsecured creditors but still falls short of three-fourth of the
value of the creditors.
27. As far as secured creditors are concerned, it is stated by the learned
senior counsel for the petitioner that there are only two secured creditors.
Both were present in the meeting but could not vote as their representatives
were not duly authorized. The net result is that the Chairman had no option
but to invalidate the proceedings and hold that the meeting could not reach at
a conclusion. Essentially the meeting lacked quorum. However, as rightly
pointed by the learned senior counsel for the petitioner, none of the two
secured creditors has filed any objections in court against the scheme.
28. In the light of these facts would it be appropriate for this court to
completely outrightly reject the scheme and to scuttle the initiative sought to
be taken by the petitioner company to try and revive itself. Reference may be
had to the judgment of this Court in M/s. Ferro Alloys Corporation vs. M/s.
National Steel & General Mills (P) Ltd. (supra) where the Court held as
follows:-
"24. Courts have always taken the view that whenever choice is
available to the Court between the revival of the company and
its winding up, the Court must as far as possible lean in favor of
revival of the company. That will create the prospect of
generating jobs and keeping in view the assets of the company
in production as against their disposal and distribution (see In
Re. Wearwell Cycle Co. (I) Ltd. (supra). In the present case a
scheme has been propounded, which has clear approval of the
creditor as well as members/shareholders. It is not the function
of the Court to examine that whether there is scope for a better
scheme (In Re. Blue Star Ltd. (2001) 104 Comp Cas 371).
There is nothing on record to show nor there is even an
allegation that the scheme is not bona fide or is otherwise
inequitable. No doubt, before sanctioning the scheme the Court
is to satisfy itself that there is compliance with statutory
requirements...."
29. Similarly, reference may also be had to the judgment of the Karnataka
High Court in S.M.Holding Finance Private Limited vs. Mysore
Manufacturers Ltd. (in liquidation), 1991 (3) KarLJ 447. In that case the
Karnataka High Court was dealing with a plea that the unsecured creditors
had not approved the scheme of 3/4th majority in the meeting that was held.
However, the unsecured creditors who opposed the scheme in the meeting
later on filed an individual affidavit in Court agreeing for approval of the
scheme/meeting 3/4th of the unsecured creditors. It was urged that as in the
meeting of unsecured creditors there was no 3/4th majority voting and
approving the scheme as a rectification has taken place the objections of
some of the unsecured creditors be rejected. The court held as follows:-
"39. In the backdrop of this decision as well as on proper
interpretation of section 391(2) which is not mandatory, but
directory and there has been substantial compliance that three-
fourths value of the unsecured creditors have agreed to and
approved the scheme, the contention of the objector that there
was no proper compliance with the Act and that the court has no
jurisdiction to sanction the scheme will have to be rejected. As
already noticed, once the scheme is held to be reasonable and
proper, merely because there is one objector to the approval of
the scheme, who is none other than the sole dissenter, the court
should not refuse to sanction the scheme. What the court could
do in such circumstances is to give protection to the dissenter,
by amending the scheme. The above views of mine receive
support from Palmer's Company Law, volume 1, twenty-third
edition, para 79-13, which reads :
"... The court will not, however, upset a scheme for minor
irregularities, as where consent of a class has been
subsequently obtained, and where the necessary majority of
one class was absent when the petition was presented, the
court allowed a fresh petition to be presented subsequently
when the necessary majority was later obtained, without
requiring the other class meetings to be held again."
30. Keeping in view the above, it would be appropriate to give another
opportunity to the company to put to vote the new scheme proposed by the
petitioner, namely, repayment of 100% dues to unsecured creditors. The
original scheme was modified orally in the course of the proceedings. This
created confusion. In this context reference may be had to the observations
of the learned Author in Palmer's Company Law, volume 1, twenty-third
edition, para 79-13 duly relied upon by this court in the case of In re DCM
Estates & Infrastructure Ltd.(supra), which reads:
"...... The court will not, however, upset a scheme for minor
irregularities, as where consent of a class has been subsequently
obtained, and where the necessary majority of one class was
absent when the petition was presented, the court allowed a
fresh petition to be presented subsequently when the necessary
majority was later obtained, without requiring the other class
meetings to be held again."
31. Hence, in equity it would be in the interest of justice that a fresh
meeting is called of the unsecured creditors to vote freshly for the newly
propounded scheme of the petitioner Company for the unsecured creditors,
namely, repayment of 100% dues within a period of 24 months. A similar
direction, in the interest of justice, may also be given for a fresh meeting of
secured creditors.
32. Accordingly, the petitioner company may convene a meeting of the
unsecured creditors to consider and if appropriate, to approve the modified
scheme of the petitioner for repayment of 100% of the outstanding debt and
a meeting of the secured creditors for both class of creditors. Liberty is
granted to the petitioner to move appropriate application to convene such a
meeting based on the new scheme for unsecured creditors. It is ordered
accordingly.
33. List on 23.04.2019 for further consideration.
(JAYANT NATH)
JUDGE
MARCH 20, 2019/n
